Time will tell which ships get sold. I'd be very surprised if NNA extended a backstop on any ships sold given the charter environment. I think that was a one time deal to launch the IPO.
I think the downward slope in the term structure of some of the tanker classes has a lot to do with shipowners having a strong preference for safety of revenue in a very volatile industry. IOW, we should expect longer term charters to be structurally lower than shorter terms simply because longer term charters offload a pile of volatility on the charterer rather than the owner.
The exact effect on earnings will depend on which ships they sell to NAP. NAP specializes in long term charters and the existing NNA VLCC fleet really does not have any. If I were to guess, I would suspect that they will sell the Electron and the Buena Suerte because they have floating rate charters that roll off in July and NNA may have inked some long term charters on these ships to start at the conclusion of the floaters. The recent spike in spot rates may have nudged charterers to do a long term deal. 5 years at a bit over 40k would probably do it nicely.
If NNA sells the two ships for 175MM and simply uses every dollar to pay down debt, the impact from selling those two ships would be a drop in quarterly earnings of about .04 per share, so my estimate would then be .13 a share if this happened at the start of the quarter. While I expect some incremental delivering, I find it hard to believe they would not do something accretive with at least some of the money.
I am not sure you quite understand the nature of these deals. These are ships that HSH essentially foreclosed on from other owners. The bank can't really efficiently manage the ships and would very much like to dispose of them, but they also want the best recovery possible. So HSH actually created a senior loan (that they hold - they never got any cash) and a second lien "hope note" that they hope the ships will eventually support but they know it is iffy. Navios manages the ships and puts a sliver of capital in that gets a preferred return and HSH waits and hopes. If rates and/or ship values spike, HSH gets paid back its senior loan and possibly some or all of the hope note. If there is any meat on the bone left, then Navios gets its taste. If HSH is ready to throw in the towel, they may allow Navios to buy the ships at fair market value, but otherwise the ships will have to be sold for enough to pay off at least the senior loan.
While I agree with you on the economics of these deals, they are really, really small relative to NNA's core business. Yes, they get good returns on the small amounts of capital invested. However, the only way there would be a material payoff for NNA is if day rates and/or asset values on the ships in the deals do a hockey stick/rocket lift off in the next 5 years. Anything else just leaves them with good returns on small amounts of capital invested and an expired lottery ticket.
You would have to be the world's laziest/most clueless investor not to realize that this amounts to a lottery ticket for NNA and nothing more.
This view must be common/popular among investors, or else the share price of all the tanker equities is completely irrational. However, I find it difficult to square what you are suggesting about charterers with the quotes I see bandied about. For example, if you cruise on over to Hellenic Shipping News you will see time charter quotes from Alibra Shipping Ltd. indicating that market for a 5 year VLCC charter is $42.5k/day. Ignoring time value of money, when I plug an incremental VLCC into NNA with the contracted daily opex they have to run one of these ships, I see that such a charter would generate $50+MM in earnings over the term of the charter. That would cover most of the purchase price of a 5 year old ship and leave you with an asset with at least another 10 years' worth of trading life. Why would charterers be willing to ink a deal at this level for such a long time if they agree with your view that this is a short-lived rate spike?
Understand, I don't much care to argue with you about this, per se. I am merely trying to square what must be a popular view about tanker rates (if the share prices make any sense at all) with easily viewable and free market data that is very central to business fundamentals.
Everything is relative. If we naively take 60k to be "the" rate for VLCCs and the same for MRs and LRs, you'd be looking at 70 cents of EPS in the next 12 months. Should NNA really trade at a forward P/E of 5? How many other stocks can you show me with that kind of earnings yield?
Agree that a dividend boost should help, but that is not the be all and end all, IMO.
EBITDA I come up with around $60MM for the quarter in my model. Quarter of a billion annual run rate is nothing to sneeze at, IMO.
Just for shiggles, I just did a variant of the model where I assumed that NNA signed every single ship to a long term time charter at 17k for MRs, 20k for LRs and 40k for VLCCs. I came up with EPS of .12 per quarter and EBITDA of about $54MM per quarter.
Well, I sent a question in to IR via email, so we will see what they say about the accounting.
Are we sure about that on the accrual? Would be an interesting question for management, especially as the profit shares are now all in the money.
GAAP is accrual accounting, so I assumed that the earnings would show the accrued revenue even if there is a cashflow lag. Presuming rates stay at these level for the rest of the year, it all comes out in the wash anyway.
Consensus as reported by Yahoo (analyst estimate link) seems to be way, way under what I estimate for Q2. With current charters, I think NNA will make about .17 per share vs. consensus of .09 right now. I spreadsheeted all the charters and assumed VLCCs would average 60k and everything else would average 25k for the quarter for average spot rates (this is for the purpose of profit share and floating charters). I plugged in the stated rates for expense by ship type, copied last quarter's G&A, depreciation and interest expense. I assumed they would get 4MM in equity earnings from NAP. Divide by 160MM shares and voila. I also get 43MM in cash flow for the quarter and 34MM in free cash flow after annualized debt repayments.
VLCC rates are currently well above 60k and MRs have been doing very, very well this quarter on a triangulated TCE basis. Anyone see obvious mistakes here, or are the analysts just lazy?
Uh, NM has been chartering ships from NMM since 2012. Now you have a problem with it? NM has always done charter in and recharter on a short term basis and historically did quite a bit of FFA trading, so I don't see anything new or particularly concerning. I do see several charters in 2015 between NM and NMM at 12k/day with profit sharing. What is different about these deals than past ones (look at the most recent NMM 6k) is that they include language that basically says any profit/loss on the charters and profit sharing will be settled at the end of the charters. That new language tells me that NM is willing to front some charter cash on these ships, but if the market does not recover on a timely basis then NMM will have to reimburse NM for losses next year. A bit of dirty pool/backdoor support for NM? Sure. But NM did something similar for NNA by extending a line of credit to NNA and allowing NNA to pay back deferred amounts owed to NM over a course of a year or more in order to get the company past a really awful period in the tanker market. Nothing new in the group, and NM always makes sure it gets paid in compensation for the help.
Maybe. Find me half a dozen stocks with a forward P/E of 7 and a div yield of over 5%. I'd like to add them to my portfolio...
I think if AF saw 5 year deals for VLCCs at 50k and MRs at 20k she would sign up a lot of ships.
Pretty much regardless of which tanker owner you look at, none of them attract a sustained bid regardless of fleet makeup. Yet we have clean and dirty rates in very profitable levels and they all appear to be cruising higher. Better yet, longer term time charter rates seem to be getting dragged upward by the spot market as well. Pretty much every tanker company reported strong Q1 numbers and made it clear there is more to come. What will it take for the sector to attract attention?